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Growth calendar    Jul 14, 2022

Law in eCommerce: Omnibus Directive vol. 2 - new duties for merchants and sales platforms explained

If you thought that everything has been said about the Omnibus Directive, this is not the case. Keep an eye out and see what we have prepared today!

In the previous article, we discussed the upcoming consumer rights law changes concerning price reduction strategies. Online marketplaces (very large online platforms on which merchants can sell their products) will be expected to introduce them due to the EU legal "update" of the EU consumers law, which is currently being rolled out. The new regulation is known as the EU Omnibus directive. It is also sometimes referred to as the "new deal for consumers".

Now, let us turn to other new rules important from the perspective of online merchants and sales platforms. The time seems fitting, as the Polish competition authority (UOKIK) seems to follow and enforce some of the changes introduced by the "Omnibus regime" already. They do it even though - as of writing this article - multiple EU member states (Poland included) are delayed in the implementation of the Omnibus regulations in their national laws (the deadline was set on May 28th, 2022) and have already received warning letters from EU commission (list of "delayed" countries here).

Without further ado, let us enter the Omnibus again, moving on to:

Consumer protection law: the explicit legal ban on outsourcing fake/distorted customers' reviews

While searching for the next thing to buy online, we often look for reviews and opinions about the product of interest. Most of the time, finding them is easy, even while looking for an answer to really specific questions like:

Does the battery of this new flagship phone last long enough to stream half the season of the "Stranger Things" on a 5G connection in one binge-watching sitting, or will I have to drag a power bank with me everywhere I go?
Can this smartwatch monitor blood pressure, or is it just a marketing gimmick and a poorly developed function?

The problem with online reviews lies not with their accessibility but rather with their credibility. More often than not, it is hard to tell if the "5-star opinion" reflects an experience or is simply a clever bit of online advertising.

Modern online marketing companies provide digital services to manage the public image of products and services in terms of online opinions. As with most business tactics, these practices have a grey area and a dark side. Some agencies go as far as writing completely fake reviews or distorting already existing negative opinions without even seeing the product. This practice obviously might confuse the consumers; thus European Union, within the framework of the Omnibus directive, took steps to combat those opinions which are fake or distorting with an explicit ban.

Citing the Omnibus directive, the following shall be considered unfair commercial practices:

Stating that reviews of a product are submitted by consumers who have used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumers.

and more importantly:

Submitting or commissioning another legal or natural person to submit false consumer reviews or endorsements, or misrepresenting consumer reviews or social endorsements, to promote products.

This is further explained in the motives of the Omnibus directive:

[...] it should therefore be considered to be an unfair commercial practice to mislead consumers by stating that reviews of a product were submitted by consumers who used or purchased that product when no reasonable and proportionate steps were taken to ensure that they originate from such consumers. Such steps could include technical means to verify the reliability of the person posting a review, for example by requesting information to verify that the consumer has used or purchased the product.
[...]
Traders should also be prohibited from submitting fake consumer reviews and endorsements, such as 'likes' on social media, or commissioning others to do so to promote their products, as well as from manipulating consumer reviews and endorsements, such as publishing only positive reviews and deleting the negative ones. Such practice could also occur through the extrapolation of social endorsements, where a user's positive interaction with certain online content is linked or transferred to different but related content, creating the appearance that that user also takes a positive stance towards the related content.

What is the practical takeaway here for merchants inhabiting the world of electronic commerce? From the legal perspective and as a part of the risk management measures - a good start might be checking current marketing strategies, especially as far as they might consist of posting favorable comments by third parties (agencies) on the Internet (social media/review websites). If this turns out to be the case, it might be a good idea to consult the marketing department/agency about possible alternatives (e.g., focusing on obtaining opinions from the actual, satisfied customers with verification mechanisms put in place).

It seems pretty easy for national competition authorities to catch both such agencies and their users. This might be the case in the example of the Polish one (UOKIK), which recently "caught" two agencies that sold fake opinions and published a memo where we can read:

The majority of the recipients of services provided by both marketing agencies are entrepreneurs wishing to improve their online visibility and increase sales. Contractors settle up on the basis of issued invoices, without concluding written contracts. Trade-in reviews take place in bundles - 5, 10, or even 200 reviews. Both companies create or obtain reviews, the publication of which is not preceded by the testing of products or services. Initiated proceedings may result in decisions by the President of UOKiK, which can impose penalties for infringement of the collective interests of consumers of up to 10% of annual turnover.

The results of the proceedings are pending, it should be expected that some penalties may follow.

New online platforms requirements: an obligation to inform about verification mechanism while publishing consumer reviews

The regulations do not stop at a legal ban concerning the distortion of opinions. There also is a duty to inform about verification mechanisms put in place:

Where a trader provides access to consumer reviews of products, information about whether and how the trader ensures that the published reviews originate from consumers who have used or purchased the product shall be regarded as material.

This is further explained in the motives of the directive:

If such processes or procedures are in place, traders should provide information on how the checks are made and provide clear information to consumers on how reviews are processed, for example, if all reviews, either positive or negative, are posted or whether those reviews have been sponsored or influenced by a contractual relationship with a trader.

In practice, this puts an additional information duty on the trader in case consumer opinions are presented. Fulfilling it might be done by, for example:

"The consumer opinions presented on this website are verified by [X], [Y], [Z] verification mechanisms."

Digital services novelty: information duties concerning personalized pricing based on automated decision making

Additional information duty will be owed to the consumer whenever:

the price was personalized based on automated decision-making

This practice is sometimes referred to as "price discrimination" and may take many shapes and forms. The criteria for finding consumers willing to pay (usually) a higher price might be, for example, their location (IP address), age, buying history, and status (student / corporate client / retired elderly). Therefore whenever pricing is established individually based on automated algorithms, there should be a piece of clear information to the consumer that this is the case.

Please mind that usage of automated pricing mechanisms might also be complicated due to the EU GDPR (General Data Protection Regulation); caution and seeking legal counsel beforehand are advised.

Additional information duties for online marketplaces

New information duty aimed at consumer protection regulations applies to online marketplaces. The definition of such a marketplace within the framework of Omnibus is as follows:

'online marketplace' means a service using software, including a website, part of a website or an application, operated by or on behalf of a trader which allows consumers to conclude distance contracts with other traders or consumers.'

In general, one should connect the online marketplace with a set of tools put together, like an online platform, provided by online intermediaries who connect consumers with merchants. In accordance with the new rules, whenever online platforms (marketplaces) rank search results, their operators should inform consumers about this fact as well as certain other circumstances important from the EU consumer's perspective.

Quoting the Omnibus directive, internet service providers operating such platforms shall have the following additional information duties:

Before a consumer is bound by a distance contract, or any corresponding offer, on an online marketplace, the provider of the online marketplace shall, without prejudice to Directive 2005/29/EC, provide the consumer with the following information in a clear and comprehensible manner and in a way appropriate to the means of distance communication:

(a) general information is made available in a specific section of the online interface that is directly and easily accessible from the page where the offers are presented, on the main parameters determining the ranking of offers presented to the consumer as a result of the search query and the relative importance of those parameters as opposed to other parameters;

(b) whether the third party offering the goods, services or digital content is a trader or not, on the basis of the declaration of that third party to the provider of the online marketplace;

(c) where the third party offering the goods, services, or digital content is not a trader, that the consumer rights stemming from EU consumer protection law do not apply to the contract;

(d) where applicable, how the obligations related to the contract are shared between the third party offering the goods, services, or digital content and the provider of the online marketplace, such information being without prejudice to any responsibility that the provider of the online marketplace or the third-party trader has in relation to the contract under other Union or national law.

Implementing proper processes to fulfill these duties will likely take time and effort not only from the legal side but also on the part of various business decision-makers. Business users are recommended to seek legal advice in ensuring compliance as competition and consumer protection authorities' activity in this regard is likely to increase with time.

A legal counsel specializing in commercial law. He focuses on international projects covering e-commerce, transport, and logistics.

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